In this Jeitocast Karen Beaman interviews Dr. Donald Harris, renowned data privacy expert, on the question of what is a global data privacy policy and why a company needs one. There are 40+ countries around the world with comprehensive privacy laws. Without a data privacy policy in place to ensure compliance with these laws, the company will not be able to get the data they need to support common HR processes and programs, to provide stock options, to manage compensation, to perform career planning and leadership development, and so on. A global Data Privacy Policy provides the opportunity to drive common standards and common approaches to HR data and process design. Listen to Don’s Jeitocast to learn more…

 

 What is a global data privacy policy? [17:30m]: Play Now | Play in Popup | Download

I recently had the pleasure to meet Professors Andrey G. Medvedev (Professor of Corporate Finance and International Business) and Tatyana Kovalyova (Director for Corporate Programmes and Associate Professor of the General Management and HR Management Chair) of the International Management Institute of St Petersburg (IMISP) in their home town of St. Petersburg, Russia (Prof. Medvedev is now with the Graduate School of Management at St. Petersburg State University). We discussed Human Capital Management and Payroll Administration in Russia.

Russian payroll resembles Western European payrolls in structure. Labor is governed by a labor code with additional laws/rules. Social packages and pensions are prevalent. Each company pays approximately 26% on top of the gross salary for social protection. A 13% flat rate tax is withheld from the gross salary at the source. Due to the soviet history, compensation is in most cases determined by a tariff system similar to what we find for public service compensation in France, Germany and other countries.

Symptoms of liberalization can be noticed in Russia. Employees are now less protected than they used to be in the Soviet Union when it was impossible to terminate employees. Strikes are now possible in Russia (recently, Ford and Coca-Cola). However, larger companies still carry some inertia from the Soviet times. A state-assisted society and a liberal society coexist. Pay in state-assisted organizations is very low. For instance, teachers are not well paid, so that many young teachers leave for industry jobs. In the Soviet Union, company departments for training, recruitment, compensation etc. were all totally separated. In some large companies this structure is still in existence.

The recognition of the importance of HCM is growing. For example, Severstal sees HCM as a competitive advantage, and the Severstal CEO is personally monitoring the company’s efforts in this area.  The association of IT Directors in Russia operates an HCM Forum.  Since October 2004, the non-profit partnership АRMC, the National Personnel Managers’ Union, organizes conferences, exhibitions and surveys. Yet, HCM clubs for Russian and international companies are still mostly separate.

Companies are quite open to outsourcing if they can benefit from a standard solution that fits their needs. Recruiting companies are moving into outsourcing services. Large consulting companies seem to have less influence now than at the beginning of the free market economy.

As for HCM systems, large Russian companies in most cases use SAP (popular) and Oracle as ERP solutions, often in conjunction with their old payroll system. International partners of the ERP providers, who came with the Western companies in 1992 when the free market economy started, generally provide the integration services. A characteristic example is Gazprom (also an important client of IMISP).

International companies generally bring their own systems to Russia when they start a greenfield  operation in the country. But they tend to keep an existing system in place when they acquire a Russian company. For example, Carlsberg acquired Baltika, the Russian brewer, and after a careful investigation decided to continue using the Russian ERP system Monolith that was highly tailored to their production requirements.

Smaller and newer companies often use 1C’s product odin C, a Russian ERP built around an accounting system. Microsoft Navision and Axapta are also popular with small and medium enterprises.

In conclusion, the Russian HCM and payroll landscape is not that different from the Western European countries. Russian companies are open to foreign software, open to Western methods and business, and open to outsourcing — yet they also put the emphasis conservatively on proven solutions that work.

I have been asked often in the recent times from clients and prospects, what would be the best way to deliver HR services through a shared service centre model, either internally or externally. Would it be an offshoring or an in-region delivery model?

Let’s start with the primary ‘customers’ of an HR service centre, the employee. The valid expectation of an employee of any given company would be that if the company is changing from a personal, face-to-face HR support model to a service centre model, the service centre support would be in the language of the employee. Also the service should be provided by service centre specialists, who knows the local HR environment, incl. the company specifics. Given the complexity of the country rules and regulations in the 100+ EMEA countries with hundreds of different languages and a variety of cultures, it is hard to believe that you will find a significant number of HR experienced talents with the needed language and cultural skills, outside the EMEA region. This is the main reason why a regional service delivery model suppose to be the most promising way for a successful HR service centre deployment.

But what should this regional model look like?

From my perspective, a combination of three components is a key for an HR service centre delivery, especially in the Europe, Middle-East and Africa (EMEA) region:

1. Regional service centres to support the regional workforce
2. In-country expertise for certain areas and required depth of knowledge as a virtual extension to the service centre
3. Offshore centres in a low cost area for heavily transaction oriented work, e.g., mass updates

The regional service centres should be establish to obtain some cost savings through economies of scale and lower cost of labour in certain EMEA areas. The service centre should focused primarily to deliver inquiry support with a high level of first touch resolution. So first you should allocate one or more locations which would give you the best balance of talent availability and labour costs. This could be Budapest, the Ukraine, Prague or other Eastern European countries. But also areas like the triangle between Germany, Switzerland and France, the locations close to the Belgium/Netherlands border or parts of Spain should be considered. Even if labour cost might be higher, the talent pool for experienced HR specialists with language capabilities might be better. Also the inflation in the Eastern European countries is higher than in the Western European countries and the market experts are predicting that the cost of labour in the Eastern European countries, e.g., Czech Republic, will hit the average cost in the Western European market in the next years.

For certain expertise (e.g., payroll) and language capabilities (e.g., Finish, Dutch or Flemish) as well as legal requirements (e.g., Russia) or cultural reasons, there even would be no other place for a good talent pool, except in the country for which the service needs to be delivered. For those countries the model should contain in-country support from people who are living and working in the country and act as an extension of the service centre. Especially for the real process experts, it is very likely to find those specialists only in the countries.

For a very limited number of highly transactional oriented work, like mass updates or report generation, it might make sense to utilize an offshore centre. But be careful that a low labour cost area of today, might not be that inexpensive in the near future anymore. There have been some articles in the press that, even in India, based on the inflation labour cost will raise to the average of US labour costs in the next years.

I think a good, ‘balanced’ model would be to deliver 60-70% of the work out of regional shared service centres, 20-30% through in-country experts and roughly 10%, using offshore capabilities.

Jeitosa is often asked to help companies assess their options when expanding their businesses in developing regions, such as Eastern Europe or Latin America. The following study talks about how the Ukraine has become the most attractive destination for outsourcing in Eastern Europe due to its geographical proximity to Europe, visa-free regime, high level of educational investment, and fast growing software industry.

Ukraine IT outsourcing tops in Eastern Europe

There are number of factors organization should consider when selecting a site for their shared services center (from Globalization: Payoffs and Tradeoffs, IHRIM Journal):

• Workforce Quality/Skill
• Workforce Availability
• Workforce Costs
• Workforce Flexibility
• Government Support
• Tax Considerations
• Communications Costs
• Communications Infrastructure
• Real Estate Costs
• Statutory/Legal Requirements
• External Infrastructure
• Travel Accessibility
• Political/Economic Stability
• Multi-Language Abilities

For more information on selecting outsourcing and offshoring sites, please see IHRM’s newest book Common Cause: Shared Services for Human Resources. Goal Europe also has some useful information on the Eastern Europe landscape for outsourcing.

In this Jeitocast, Karen Beaman interviews Christian Adlung on the subject of what’s changing in the HR landscape in Europe. The top three trends that Christian sees occurring across Europe are: (1) harmonization of talent management practices and policies both on an European regional level and on a global level; (2) movement towards shared services, particularly placing shared service centers in Eastern Europe in countries such as Hungary and the Czech Republic; and (3) development of more strategic talent management capabilities, such as performance management, recruiting, and staffing. Christian also talks about the challenges multinational companies face when expanding their business in Europe: (1) the highly regulated and diverse legislative situation making it difficult to standardize practices across countries; (2) the strong cultural differences throughout the 27 different countries of the European Union, confounding the difficulties in harmonization; and (3) the uneven population size of companies in the different countries making it difficult to provide the same high levels of service to everyone.

 

 What's changing in the HR landscape in Europe? [17:00m]: Play Now | Play in Popup | Download